Takeover Is Ordered At Troubled Union; Leader Steps Aside

The parent union of New York City's District Council 37 said yesterday that it was taking direct control of the 120,000-member council as of tomorrow in an effort to end a spiraling scandal that has involved vote fraud and embezzlement.

Gerald W. McEntee, president of the parent union, the American Federation of State, County and Municipal Employees, named a trustee to run the council and said that Stanley Hill, the council's executive director, was taking a voluntary unpaid leave.

The announcement was a deeply embarrassing blow to Mr. Hill, who had worked hard in recent weeks to fend off trusteeship of the city's largest municipal union and to demonstrate that he was in charge and was setting matters straight.

Under the trusteeship, the parent union will run the district council's day-to-day business, including grievance hearings, negotiations and staffing.

One district council leader has pleaded guilty to embezzlement, and another has been expelled amid revelations that he stole more than $1.7 million. At least 6 of the 23 members on the council's executive board are under investigation on allegations of receiving kickbacks, while the Manhattan District Attorney, Robert M. Morgenthau, has subpoenaed records from the district council and all 56 of its locals.

And last week Mr. Hill announced that two of his closest aides were resigning after they acknowledged committing fraud in the 1996 ratification vote on the union's five-year-contract, which included an unpopular two-year wage freeze.

In recent weeks, many officials from the parent union had urged Mr. McEntee to name a trustee because District Council 37 had become an embarrassment for the union and the labor movement at large.

In a news release, Mr. McEntee said: ''My first concern is for the hard-working members of this union. They deserve an honest, credible union. I pledge to the 120,000 members of D.C. 37 that the reputation of this union will be restored.''

Mr. McEntee named Lee Saunders, one of his top assistants, as trustee of the council, which includes 56 union locals. The trusteeship can last for up to a year, and several union officials said they would not be surprised if Mr. Hill sought to regain the leadership once the trusteeship ended. Since February, Mr. Saunders, a 47-year-old Cleveland native, has served as trustee of a District Council 37 local representing nearly 25,000 school cafeteria aides and crossing guards.

In an interview last week, Mr. Hill praised Mr. Saunders for restoring confidence in that local and for balancing its books. The local had plunged into debt under its former president, Charles Hughes, who was expelled from the union in June when an internal judicial panel found that he had embezzled more than $1.7 million.

Mr. McEntee said Mr. Hill would take his unpaid leave of absence pending the outcome of the parent union's investigations. The parent union has hired KPMG Peat Marwick to audit the council's books, and the investigative agency Kroll Associates to look into the fraud in the 1996 ratification vote.

Janet Dewart Bell, the council's acting associate director, said Mr. Hill had no comment about yesterday's announcement. But James Tucciarelli, president of a local representing 1,000 sewage treatment workers, came to Mr. Hill's defense.

''It's a positive thing that he's on an unpaid leave and is not being forced to resign,'' Mr. Tucciarelli said. ''Stanley has been a very dedicated leader. You'll never find a harder-working guy.''

Mayor Rudolph W. Giuliani's office issued a statement praising Mr. Hill, one of the Mayor's closest labor allies: ''In the Mayor's experience, Stanley Hill has been an effective leader who has always worked hard to resolve difficult problems and for the good of the city. This is an interim step, and we would all be best advised to await the final outcome.''

The heads of several locals attacked Mr. McEntee's move, while others applauded it. James Butler, president of a local representing nearly 10,000 municipal hospital workers, said: ''I'm very sad to see Stanley Hill out of the leadership. I've been around here over 25 years, and Stanley was one of the best leaders there was. It's a sad day for us because he was the drum major.''

But Mark Rosenthal, head of a local representing 2,800 motor vehicle operators and one of the foremost advocates of wholesale change at the council, praised the trusteeship. ''I think this is the first step in bringing back the integrity of D.C. 37,'' he said.

Charles Ensley, president of a local of 14,000 social service employees, agreed. ''We're glad the international president has stepped in,'' he said, ''and we're confident that they will restore order and the members will regain confidence. It is our hope that additional investigations into allegations of misconduct by D.C. 37 officials will be completed quickly so that all taint will be removed.''

As the waves of scandal lapped ever higher in recent weeks, Mr. Hill tried to maintain order and dignity. He pushed through rule changes to tighten the council's financial controls. He boasted that the district council was continuing to deliver as many services as ever, including training sessions for shop stewards and night college courses for hundreds of members.

And Mr. Hill met with editorial boards to contend that he should not be blamed for all the wrongdoing in the council's largely autonomous locals. ''Yes, this is my toughest crisis,'' he said on Wednesday. ''Yes, there are some bad eggs. But again, this council is going to survive. We are making corrections.''

But Victor Gotbaum -- who picked Mr. Hill to succeed him as executive director -- and the presidents of five locals called for a trusteeship, asserting that Mr. Hill had done too little to prevent corruption.

Mr. Gotbaum and Mr. Ensley maintained that Mr. Hill either knew or approved of the fraud in the 1996 ratification vote. Both said it was doubtful the two men who resigned -- Mr. Hill's associate director and one of his right-hand men -- would have tampered with the votes without Mr. Hill's approval.

But Mr. Hill insisted that he had known nothing about the fraud until it was reported Nov. 20 that the Manhattan District Attorney was investigating the 1996 ratification vote.

In 1970, Mr. Hill was elected president of a social workers' local, but when he lost his race for re-election, he was appointed to the district council's staff. Mr. Gotbaum picked him as his successor in 1987, impressed by his workaholic ways and his rapport with the rank and file.

Union leaders point to two major reasons why the council fell into crisis. First, it has an awkward governing structure in which many executive board members rely on Mr. Hill for their perks and are loath to ask him tough questions about overspending or other matters. Mr. Hill relies for his re-election on the presidents of a few powerful locals, so he is reluctant to crack down on them. Second, many officials say, Mr. Hill is too nice and has taken a see-no-evil approach to corruption.

''It's like the pathway to hell is good intentions,'' Mr. Gotbaum said. ''The pathway to bad leadership is being a nice guy.''

As an example, some union leaders point to Mr. Hill's failure to act sooner against Mr. Hughes, president of the cafeteria aides' local. Last June, an internal judicial panel expelled Mr. Hughes after finding that he had pushed up the local's debt to $10 million and had wrongly taken immense sums, including $329,000 for personal credit card bills and $685,000 for fraudulent overtime.

Mr. Hill and the council's treasurer, Robert F. Myers Jr., approved the $685,000 in overtime after Mr. Hughes said he had worked 40 hours of overtime every week for four straight years. Mr. Hill defended the overtime payments, saying the executive board of Mr. Hughes's local had approved them. But the judicial panel found that the board's approval was transparently fraudulent.

Many union leaders said this was a classic case of Mr. Hill's aloof oversight of a local's powerful president.

Mr. Hill has also been criticized for not taking a tough stand on the council's finances. Despite the Wall Street boom, its net assets have dropped to $3.5 million from $22 million in 1994. Council officials say that about half the decline was caused by new accounting rules, which require that retiree health care costs be counted as current liabilities.

But some union leaders point to a general laxness about spending. For instance, the district council and its 56 locals sent at least 700 people, at an estimated cost of more than $2 million, to the parent union's convention in Hawaii last summer.